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Market Plus: May 16, 2008: Alan Brugler

posted on May 16, 2008

Market Plus: May 16, 2008: Alan Brugler Pearson: This is the Friday, May 16th, 2008 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. This week our guest is Alan Brugler. And, Alan, it's been a crazy couple of years in the commodity business. I don't know how you guys who trade these markets are able to withstand it all but it's been phenomenal, it's been amazing, it's certainly put a spotlight on agriculture, not always a favorable one according to the national media who in a lot of ways doesn't get what we're doing here in terms of food and fuel. What a great story on the show Friday night that I think kind of balances a lot of that stuff out. What is ahead? We've talked about crude oil prices, $128. How long can the world's economy sustain these kinds of huge, I mean, we're talking about tripling of oil prices, gasoline prices, diesel prices. That's a lot for an economy to swallow.

Brugler: Yeah, historically speaking we used to think back in the day that a $10 or $20 jump in crude was worth about 1% of GDP, that you'd lose performance on the economy as that happened. What we're finding is, of course, that as more and more of the U.S. economy has gone electrical, okay, digital, that it has less of an impact. But there is no question from a worldwide perspective we're in a demand rationing situation. We're trying to get somebody to quit using crude oil from any means. And the speculators are probably helping that along, despite the CFTC basically saying they can't find any evidence of that. But somebody somewhere has got to quit using the stuff and you're seeing that domestically, you're seeing smaller cars, you're seeing the use of our substitutes, of ethanol and you're also seeing perhaps some third world countries being encouraged to go back to other means of transportation or not to expand, in the case of China not to expand their vehicle traffic so rapidly.

Pearson: It's going to be interesting to see where this all heads up and how does it play out in terms of the cost of the commodities that we discuss weekly on the show, corn, soybeans, cotton, cattle and hogs.

Pearson: Alright, let's talk about what's ahead now for prices that we are concerned about. On the show you're not in a hurry to sell 2009 corn because we have a very tight carry out if the demand continues as it has for corn.

Brugler: Yeah, and I think the key area we want to focus on is the export sector. That is the area that USDA has said for years has the most elasticity, it's the most likely to respond to price signals, price signals saying don't buy the stuff. Weak dollar, of course, has made the price signal less effective but I think that's they key. I think it's probably a case where wheat expansion this year, expanded production this year will result in more wheat feeding. The countries who were desperate for feed wheat last year ended up buying corn. That will go away. We've actually taken our corn export figure down to $2 billion bushels for next year. That's lower than USDA. Over time that reduces the price but we do need another big year of corn production. This year and probably the following year to really get prices back anywhere close to historic levels.

Pearson: Real quick I want to switch over to livestock because we're running out of time and you made a couple of great comments on the show tonight. A little bit optimistic finally, we see maybe a little bit of blue sky in both cattle and hogs, not much, I'm not saying that we're dancing in a rainbow here but we are at least seeing some opportunities maybe to make some money in the fed cattle side.

Brugler: Yeah, we basically saw the marketings 111% of a year ago, that got caught up a little bit on the back of the cattle that we had earlier in the spring. We got the placements at 98% of a year ago so we effectively have got a few less cattle in the lot. That will help to support prices. That is exactly what we need here. I'm concerned, though, that the futures market may have gotten a little bit ahead of the cash market, the cash trade on Friday night after the report was actually a little lower than it had been last week and then, of course, we've got the South Korean situation and them dragging their feet on importing the beef after the packers have already put it in the cooler to get ready for them. So, there's some issues on the cattle but, again, it's nice to have had a rally from $86 to $94. It makes things work a little bit better financially than we had been.

Pearson: That's right, of course, that's the flip side of the food versus fuel is what's going to happen with beef cattle prices and frankly, you know, higher priced corn always makes for higher priced cattle.

Brugler: Yeah, there's a good relationship that about has to be that way otherwise you just don't put the cattle in the lot.

Pearson: As usual, Alan, some great insights, we appreciate it. Alan Brugler joining us this week on Market Plus. From all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news